Independent analysis of the IP communications sector - VoIP, Mobile Broadband, IPTV, Unified Communications, Contact Center, Telepresence/Video, Collaboration, WebRTC, Social Media, etc. Plus, my thoughts on all the other things I enjoy during the rest of the day like the Red Sox and great music. And more recently, Smart Grid too!

Friday, July 22, 2011

ShoreTel Conference Recap – Brilliantly Simple, Sort Of

ShoreTel is a company that’s definitely doing things right, and while I’ve only been following them closely for about three years, they’ve come a long way during that time. Having come from Cisco’s event last week, the market share lines are clearly drawn in the IP telephony space. In North America, Cisco and Avaya/Nortel hold about 75%, which doesn’t leave much for everyone else. The playing field has inevitably thinned out, and for anyone else to crack double digits in share, that would be a pretty big achievement.

As in any market with this type of structure, there is room for a few Tier 2 players that will collectively grab maybe 20%, and the remaining 5% will go to a fragmented field of Tier 3s who are barely hanging on, or have found a defensible niche. ShoreTel is clearly in the Tier 2 group, and the case can be made – and they had industry data to show it – that they are the top player in that stratum of the market. Sure, there’s a huge jump up to the Cisco/Avaya league, but Tier 2 is still a big space, and ShoreTel can do very well here without worrying too much about who’s above them or the multitude of Tier 3s down below.

Just like last year, it was easy to see the strong rapport that ShoreTel has with their partners, and that goes a long way to explaining their momentum. Being a public company, there were plenty of proof points to support this, and I tweeted several of them during the event (#shor11). In terms of my key takeaways, I’m going to focus on the messaging we heard, both in the keynotes as well as the various personal briefings and hallway banter.

I’ll start at the top, with CEO Peter Blackmore. He came across as a serious, credible leader, and presented a pretty sound vision for ShoreTel to make the most of their market opportunity. The unspoken message is to beat Cisco – where they have had their share of success – but the clearer message is to present a great offering that the market can understand and see value in. This is the root of their “brilliantly simple” tagline, and with all the complexity around making IP technology actually work, it resonates nicely with both customers and channel partners.

I’m not going to rehash the details, but he set the stage explaining the market drivers they’re trying to capitalize on. Mobility is the big one, and this was a strong theme during the event. Video was big too, but secondary to video. They’re a bit behind the curve on these fronts, so there’s a lot of hasty catching up going on here. However, we have to remember that a lot of businesses wouldn’t know what to do with a soup-to-nuts collaboration solution, so there’s a still a window here for ShoreTel.

Peter Blackmore stated an ambitious goal of reaching 20% market share from their current level of 9%, and that would really put them in the big leagues. A lot would have to go right, especially in moving up-market – and wrong for their competitors – and he identified building the right mix of channel partners as the key for doing this. There was a lot of talk around how they’re supporting their channels, especially in terms of having no conflict. This clearly is a pain point for channels with other vendors, and ShoreTel looks to have a good plan here.

I could go on and on about all the positives their executives shared with us (I need to be balanced and fair!), and taken at face value, it’s not hard to understand why they’re winning business and why their stock price has doubled. If you’re a fan, the strong financials make them poised for a good run, and possibly to make some acquisitions. If you’re a doubter, and still think about the old ShoreTel, you’ll point to their lack of profitability, and perhaps say they can’t scale enough for enterprise customers. You didn’t hear much about the latter at the conference, but given the history, these things can’t be ignored either. Overall, though, I like their chances.

So, what’s to worry about? Well, “brilliantly simple” can be a differentiator so long as you can deliver it. Clearly, ShoreTel has done this, but it’s largely been with voice and fairly basic deployments. On one hand, there’s a huge market around this, and their CEO noted that only half of the market has moved to IP. The opportunity is easy for businesses to understand - and for channel partners to sell/support. If that was the extent of the business, we could all go home happy.

As mentioned, mobility and video are just now being added to the mix, and while it’s early days still, these are much harder to keep simple. I have no doubt they will get all these pieces to work, but as we saw from various demos and briefings, there’s a ways to go still. Their acquisition of Agito gave them some FMC expertise, but mobility is not native to ShoreTel’s R&D DNA. When the bigger players talk about collaboration, conferencing, social media, mobile UC, SIP trunking, etc. it’s pretty clear what these look like and how they work. You don’t have the same sense of that yet with ShoreTel. For example, their Polycom videoconferencing endpoints only work with each other, and aren’t yet integrated with the desktop. That’s ok – they’ll get there, and I think they’re realistic about where they can compete successfully here.

I guess it all depends what you’re comparing this against. CEBP is not on the ShoreTel menu yet, but does it need to be? They know their market, and they know what their partners are willing/able to support. These capabilities are really not big drivers yet among their core customers, so they don’t have to be best-in-class here. The challenge comes in trying to make mobility and video as “brilliantly simple” as voice. I don’t think anyone has been able to do that yet, so if they can truly pull this off, they’ll really have something special.

I’m not alone in wondering how quickly all this will come together. If their roadmap takes too long, there’s a real danger of businesses finding ways to do what need to do with Lync, at which point ShoreTel doesn’t have much to offer beyond voice. Similarly, if mobility and/or video take things from simplicity to complexity, they’ll undermine their core business. That’s a tricky balance to strike, since they need to succeed with both channels and customers.

Now it’s easier to understand why they’re using a two-tier channel model, and why so much emphasis is being placed on expanding/enhancing their partner base. It’s no secret that data VARs are not created equally when it comes to voice – and vice versa. This is a different sales pitch, and it has to work for the channel as much as for the customer. ShoreTel certainly isn’t alone here, but they definitely have a lot riding on keeping things simple.

In short, I think ShoreTel has a strong hand, and the market is theirs to lose. They’re also late to virtualization, and that’s a dual-edged sword. If it happens too quickly, the core business is cannibalized, and the XaaS model is harder for channels to understand and monetize. On the other hand, if other vendors have better virtualized offerings, the business may go that way among customers who decide to go all-in.

On the upside, there’s a lot to like about ShoreTel – the little engine that could. This also came out in the closing keynote by Joe Theismann – yeah, the football guy. Boy, was he good. Motivational speakers are pretty predictable, but I thought his message worked really well. He talked about teamwork and the need for channels to work closely with ShoreTel to get the results. He had great analogies and stories from his playing days, and they apply very nicely to what the conference was all about. So, lots of positives to build on, and it’s pretty simple for me – if they can keep it simple, they just might get their 20% share – and if they do, Joe will no doubt double his fee to come back, but it will be worth every penny.

JAA is also a CTC member

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About Me

Jon Arnold is Principal of J Arnold & Associates, an independent telecom analyst and marketing strategy consultancy. The consultancy’s primary focus is on improving mind share and market share with thought leadership, market research and go-to-market planning. Core expertise is IP-based communications and disruptive technologies, such as VoIP, mobile broadband, telepresence/video, unified communications, collaboration, contact centers, session border controllers, social media and Web-based applications.
JAA also works with companies for funding, M&A, strategic partnerships, and monetizing patents and intellectual property.Jon serves as an Advisor to several startups, and is a member of the CTCA.